MANAGERIAL OWNERSHIP AND DIVIDEND POLICY

IN INDONESIA

I Wayan Kartana
Faculty of Economics and Business Warmadewa University, Denpasar-Bali, Indonesia
wkartana@gmail.com

Abstract
In general, the main objective of investors in investing their capital is to get a return or return
on investment (return), namely in the form of dividend income. This dividend policy is very
important for financial managers because a manager must pay attention to the interests of
the company, shareholders, society and the government. So this research takes the title
Managerial Ownership and Dividend Policy. The formulation of the problem in this study is:
Does the proportion of managerial ownership affect dividend policy? The number of samples
in this study was all 611 companies listed on the Indonesia Stock Exchange in the 2015-
2019 observation periods. With the method of determining the sample using purposive
sampling technique, 26 companies were obtained as samples with 5 years of financial report
data, so the data obtained as 130 financial statement data will be processed using SPSS for
Windows. The data analysis techniques used were validity and reliability tests, classical
assumption tests, multiple linear regression analysis, determination analysis, t-test (t-test),
and F test (F-test). The analysis found that managerial ownership has a positive effect on
dividend policy in companies listed on the Indonesia Stock Exchange, the proportion of
managerial ownership <20% has no effect on dividend policy in companies listed on the
Indonesia Stock Exchange, the proportion of managerial ownership> 20% has a positive
effect on dividend policy on companies listed on the Indonesia Stock Exchange, return on
assets has no effect on dividend policy on companies listed on the Indonesia Stock
Exchange, debt to equity ratio has no effect on dividend policy on companies listed on the
Indonesia Stock Exchange, and total asset turnover has a negative effect on dividend policy
in companies listed on the Indonesia Stock Exchange.

Keywords: Managerial Ownership, Dividend Policy, Return on Assets, Debt to Equity Ratio,
Total Asset Turnover.

INTRODUCTION
The rapid development of the business world has led to increasingly fierce business
competition. This creates a business environment that is full of competition, so the
management has to rack their brains to maintain the company's existence in the business
world. One form of company to develop its business can be done by increasing capital, either
by way of debt or issuing shares in the capital market. According to Dewi and Vijaya (2018:
15) the capital market in general is a meeting place for sellers and buyers to conduct
transactions in order to obtain capital. Sellers in the capital market are companies that need
capital (issuers), so they try to sell securities in the capital market. While the buyer (investor)
is the party who buys shares in the company to earn a profit.
In general, the main purpose of investors in investing their capital is to get a return or
return on investment in the form of dividend income. Thus, every company is required to be
able to operate with a fairly high level of efficiency in order to continue to have superiority
and high competitiveness in an effort to generate net profit as optimally as possible.
Profits earned by the company are divided in the form of dividends or held for
investment. The profit allocated to retained earnings will be used by the company to be
reinvested in profitable assets, for example used to buy securities. Meanwhile, profits
allocated to dividends will be distributed to investors as a return on funds invested in shares.
Dividends are an investment attraction for investors in the primary and secondary markets.
This dividend policy is very important for financial managers because a manager must
pay attention to the interests of the company, shareholders, society and government.
Problems are sometimes complicated by external funding. So it is possible to distribute
profits as dividends and at the same time issue new shares. Another problem with dividend
policy is that companies can distribute dividends not in the form of cash but in the form of
shares (stock dividend). Companies can also distribute funds to shareholders by repurchase
of shares (Dewi and Vijaya, 2019: 137).
Then there is an agency problem or agency conflict. Agency problems can be overcome
by carrying out total supervision of the performance of the manager or manager. Such
supervision requires a large enough cost to overcome it which is called agency cost. Agency
costs can be in the form of a bonus of share ownership rights in the company's share
ownership structure by shareholders. To reduce agency costs, it can be done by increasing
managerial ownership.
According to Nabela (2012: 2) managerial ownership (managerial ownership) is the
proportion of shareholders from the management who actively participate in making
company decisions (directors and commissioners). In the involvement of share ownership,
managers will act carefully because they will also bear the consequences in the decisions
they make (Listyani, 2013: 45). In addition, managers will be motivated to improve the
management of their company. Managerial ownership can be seen from the concentration of
ownership or the percentage of share ownership by the board of directors and management.
The percentage is obtained from the number of shares owned by the managerial. The
greater the proportion of managerial ownership in the company,
Concentrated ownership has more attention on monitoring company decisions with the
aim of protecting their investments (Ullah et al, 2012). Taman and Nugroho (2011) argue that
the concentration of ownership describes how and who has control over the whole or most of
the ownership of the company and the whole or most of the holders of control over the
business activities of a company. This is in accordance with the residual theory of cash
dividends (Karen, 2003) which states that the excess cash should be distributed in the form
of dividends, but the owner does not like the distribution of profits in the form of dividends.
Owners prefer to treat it as retained earnings, unless they know that the fund does not
provide a positive net present value (NVP) on the additional investment.
High managerial ownership will align the interests of management with the interests of
shareholders. Managers will act more carefully, because managers, who are also
shareholders, will also bear all the consequences that are beneficial or detrimental to
shareholders, so that the company's management policies that will be implemented can
increase the prosperity of shareholders. When the manager owns shares in the company,
then he tends to lead to a decision to pay higher dividends as a return on his investment.
Several research results that show managerial ownership have a positive effect on the
dividend payout ratio include research from Rahmawati (2015), Yusuf (2016), and Qahtani
(2017).
The results of the research are not yet conclusive or inconsistent, the researcher
suspects that the proportion of managerial ownership according to SAK is <20% managerial
ownership, the investor company does not have a significant influence on the investee
company, while companies with >20% managerial ownership have a significant influence on
the investee company. . Therefore, in this study, apart from examining the effect of
managerial ownership on dividend policy, it also examines the proportion of ownership on
dividend policy, this distinguishes this research from previous research that has been done.
To find out how much influence managerial ownership has on dividend policy, this study
uses the control variables debt to equity ratio (DER), return on assets (ROA), and total
assets. Financial ratio debt to equity ratio can be used to assess debt to equity. An increase
in debt will affect the size of the net profit available to investors and determine the size of the
dividend to be received. Research result Muktisari (2005) shows return on assets (ROA)
effect to the dividend payout ratio.
Debt to equity ratio (DER) is the main financial ratio and is used to assess the financial
position of a company. This ratio is also a measure of the company's ability to pay off its
obligations. The results of Yasa's research (2016) show that the debt to equity ratio (DER)
has a negative effect to the dividend payout ratio. According to Syamsuddin (2011: 62), total
assets are the total of all assets owned by companies or financial institutions that are used to
support the operations of these companies and financial institutions. The results of
Simanjuntak's research (2016) show that total assets have a significant effect to the dividend
payout ratio.
Referring to the background of the research that has been presented, the formulation of the
research problem is: Does the proportion of managerial ownership affect dividend policy?
LITERATURE REVIEW AND RESEARCH HYPOTHESIS
Signaling Theory
The theory that can be used as a basis for dividend policy is signaling theory. The originator
of this signaling theory is Spence who conducted a study entitled Job Market Signaling in
1973. Spence (1973) stated that asymmetric information occurs in the labor market.
Therefore, Spence created a signal criterion in order to add power to decision making.
Information is an important element for investors and business people because it presents
information, notes or descriptions of both past, current and future conditions regarding the
company's business prospects and how the securities market is. Complete, relevant,
accurate and timely information is needed by investors in the capital market as an analytical
tool to make investment decisions (Jogiyanto, 2017: 89).
According to Suryani (2015: 30) signaling theory is about how a company should give
signals to users of financial statements. This signal is in the form of information about what
the company has done to realize the owner's wishes. Companies that have good prospects
will try to avoid selling company shares and seek new capital in other ways. Company
information is an influential element for investors, because company information can provide
an overview of the current and future state of the company.
Signaling theory is a theory that looks at the signs that describe a company (Dewi and
Wijaya, 2018: 134). This theory explains that information about cash dividends paid is
considered by investors as a signal of the company's prospects in the future. This
assumption is due to the occurrence of asymmetric information between managers and
investors, so that investors use dividend policy as a signal about the company's prospects. If
there is an increase in dividends it will be considered a positive signal which means the
company has good prospects, causing a positive stock price reaction, on the other hand, if
there is a decrease in dividends it will be considered a negative signal which means the
company has not so good prospects, causing share prices low (Sofia Maria and Asandimitra,
2017: 198).

Residual Dividend Theory

Residual dividend policy is a form of dividend policy that pays dividends only if there is
an excess of funds over the company's profits that are used to finance planned projects.
According to Hannifin (2015: 372), the basis of this policy is that investors prefer if the
company holds and reinvests the company's profits rather than distributing dividends if the
reinvested profit can generate a higher return than the average return that can be generated
from other investments with comparable risk. The theory explains that dividend payments are
made if the company has excess funds remaining after being used to finance investments
that have a positive NPV by using the company's retained earnings. Companies that do not
have remaining funds will not pay dividends. Companies tend to finance investment projects
using internal financing compared to external financing because the costs to be incurred will
be cheaper. This theory also explains why companies that experience fast growth tend to
rarely pay dividends and have a low dividend payout ratio.

Agency Theory
Agency theory states that agency relationships arise when one or more people (principals)
employ another person (agent) to provide a service and then delegate authority in decision
making to the agent (Supriyono, 2018: 63). In practice, the manager as the manager of the
company certainly knows more internal information and the company's prospects in the
future than the capital owners or shareholders. So as a manager, the manager has an
obligation to provide information about the condition of the company to the owner.
Shareholders expect agents to act on their behalf thereby delegating authority to agents.
To be able to perform its functions properly, management must be provided with adequate
incentives and supervision. Supervision can be done through ways such as binding agents,
auditing financial statements and limiting the decisions that can be taken by management.
Supervision activities, of course, require costs called agency costs. Agency costs are costs
associated with management oversight to ensure that management acts consistently in
accordance with the company's contractual agreements with creditors and shareholders
(Sofia Maria and Asandimitra, 2017: 190).
Managerial Ownership and Dividend Policy
The theory that can be used as a basis for dividend policy is signaling theory. According to
Suryani (2015: 30) signaling theory is about how a company should give signals to users of
financial statements. Dividend payout ratio (DPR) is a financial ratio used to measure the
percentage of net profit distributed to shareholders in the form of dividends for a certain
period of time (usually within 1 year). According to Sudana (2011: 167) Dividend payout ratio
(DPR) is the percentage of profit paid in the form of dividends, or the ratio between profits
paid in the form of dividends and the total profit available to shareholders.
Problems arise when there is a difference between shareholders and managers or what
is called the agency problem. On the one hand, shareholders want the company's profits to
be distributed as dividends on their investments, but managers want the profits to be used as
purchases of larger investments for company growth.
Agency problem can be overcome by carrying out total supervision of the performance
of managers or managers. Such supervision requires a large enough cost to overcome it
which is called agency cost. Agency costs can be in the form of a bonus of share ownership
rights in the company's share ownership structure by shareholders. To reduce agency costs,
it can be done by increasing managerial ownership.
According to Nabela (2012: 2) managerial ownership (managerial ownership) is the
proportion of shareholders from the management who actively participate in making
company decisions (directors and commissioners). In the involvement of share ownership,
managers will act carefully because they will also bear the consequences of the decisions
they make. In addition, managers will be motivated to improve the management of their
company.
Research conducted by Indriani (2015) and Yusuf (2016) shows that managerial
ownership has a positive effect on the dividend payout ratio (DPR). So the first hypothesis in
this study is:
H1: Managerial ownership has a positive effect on Dividend PA Ratio in Companies Listed
on the Indonesia Stock Exchange for the 2015-2019 Period.
Managerial Ownership Proportion and Dividend Policy
Managerial ownership can be seen from the concentration of ownership or the percentage of
share ownership by the board of directors and management. The proportion of managerial
ownership according to SAK managerial ownership < 20% of the investor company does not
have a significant influence on the investee company, while the company with managerial
ownership > 20% of the investor company has a significant influence on the investee
company. The percentage is obtained from the number of shares owned by the managerial.
The greater the proportion of managerial ownership in the company, the management tends
to be more active in the interests of shareholders where the shareholders are themselves
(Manurung, 2012: 87).
Companies with managerial ownership above 20% of voting rights and are the highest
shareholder compared to other shareholders will become controlling shareholders in the
company and vice versa. By becoming a controlling shareholder, a shareholder can propose
policies related to the running of the company, including dividend policy. So the second and
third hypotheses in this study are:
H2: Managerial ownership < 20% has a negative effect on Dividend PA Ratio in Companies
Listed on the Indonesia Stock Exchange for the 2015-2019 Period.
H3: Managerial ownership > 20% has a positive effect on Dividend PA Ratio in Companies
Listed on the Indonesia Stock Exchange for the 2015-2019 Period.

Dividend Payout
Managerial Ownership (KM) Ratio (DPR)

Control Variables:
Return on Assets (ROA)
Debt to Equity Ratio (DER)
Total Assets Trunover
(TATOON)
 Figure 1 Conceptual Framework

RESEARCH METHOD
The location of this research was carried out on the Indonesia Stock Exchange (IDX) by
accessing www.idx.co.id.The object of this research is managerial ownership and dividend
policy. The population is a generalization area consisting of objects or subjects that have
certain qualities and characteristics determined by researchers to be studied and then draw
conclusions (Sugiyono, 2016). The population of this study were all companies listed on the
Indonesia Stock Exchange for the 2015-2019 observation period as many as 611
companies.
The sample is part of the population that has characteristics like those of the population.
The sampling method chosen was non-probability sampling with purposive sampling
technique. Purposive sampling technique is a technique of determining the sample by doing
based on considerations that are in accordance with the research objectives. This sample is
used because in an effort to obtain data about the phenomenon or problem to be studied
requires a data source or special criteria based on certain research, a certain level of
significance (Sugiyono, 2016). The criteria used as the basis for selecting sample members
in this study are as follows:
a. Companies listed on the Indonesia Stock Exchange (IDX) during the study period, namely
2015 to 2019.
b. Companies that publish consecutive financial statements during the 2015-2019 period.
c. Companies that distribute dividends during the 2015-2019 period.
d. Companies with managerial ownership during the 2015-2019 period.
Table 1. Sample Selection Stage Based on Criteria

No Information Amount
Companies listed on the Indonesia Stock Exchange in a row in 2015-
1 611
2019
Companies that do not report annual financial statements during the
2 (119)
study period
3 Companies that do not distribute dividends during the study period (337)
Companies that do not have / do not have managerial ownership during
4 (129)
the 2015-2019 period
Number of samples 26
Total observation data (5 years x 26 companies) 130
 ..
RESULTS AND DISCUSSION
Effect of Managerial Ownership on Dividend Policy
The results of testing the first hypothesis of the effect of managerial ownership on the
dividend payout ratio in companies listed on the Indonesia Stock Exchange show a
regression coefficient of 0.19% and a t-count value of 1.16 and a significant value of 0.03
which is smaller than 0.05. , it can be concluded that managerial ownership has a positive
effect on the dividend payout ratio in companies listed on the Indonesia Stock Exchange, so
the first hypothesis (H1) which states that managerial ownership has a positive effect on the
Dividend PA Ratio in Companies Listed on the Indonesia Stock Exchange for the 2015-2015
period 2019, supported.
Managerial ownership is the proportion of management's shareholders who are actively
involved in making company decisions (directors and board of commissioners). In the
involvement of share ownership, managers will act carefully because they will also bear the
consequences of the decisions they make. In addition, managers will be motivated to
improve the management of their company. So the higher the managerial ownership, the
higher the dividend policy made by the company. The results of this study are in line with
research conducted by Indriani (2015) and Yusuf (2016) which shows that managerial
ownership has a positive effect on the dividend payout ratio (DPR).
The Effect of the Proportion of Managerial Ownership < 20% on Dividend Policy
The results of testing the second hypothesis that the effect of the proportion of
managerial ownership <20% on the dividend payout ratio in companies listed on the
Indonesia Stock Exchange show a regression coefficient value of 0.16 and a t-count value of
1.39% and a significant value of 0.16 which is greater. of 0.05, it can be concluded that the
proportion of managerial ownership <20% has no effect on the dividend payout ratio in
companies listed on the Indonesia Stock Exchange, so the second hypothesis (H2) which
states managerial ownership <20% has a negative effect on the Dividend PA Ratio.
Companies Listed on the Indonesia Stock Exchange for the 2015-2019 Period, are not
supported.
The results of this study indicate that the proportion of managerial ownership <20%
cannot affect the size of the dividend policy carried out by the company, this is probably
because the percentage of managerial ownership below 20% has no influence in determining
the dividend policy taken by the company. The proportion of managerial ownership according
to SAK managerial ownership < 20% of the investor company does not have a significant
influence on the investee company.
Effect of Managerial Ownership Proportion > 20% on Dividend Policy
The results of testing the second hypothesis that the proportion of managerial ownership
> 20% on the dividend payout ratio in companies listed on the Indonesia Stock Exchange
shows a regression coefficient value of 0.96% and a t-count value of 2.23 and a significant
value of 0.02 which is smaller. of 0.05, it can be concluded that the proportion of managerial
ownership > 20% has a positive effect on the dividend payout ratio in companies listed on the
Indonesia Stock Exchange, so the third hypothesis (H3) which states managerial ownership
> 20% has a positive effect on the Dividend PA Ratio. Companies Listed on the Indonesia
Stock Exchange for the 2015-2019 Period, are supported.
Managerial ownership can be seen from the concentration of ownership or the
percentage of share ownership by the board of directors and management. The proportion of
managerial ownership according to SAK managerial ownership < 20% of the investor
company does not have a significant influence on the investee company, while the company
with managerial ownership > 20% of the investor company has a significant influence on the
investee company. The percentage is obtained from the number of shares owned by the
managerial. The greater the proportion of managerial ownership in the company, the
management tends to be more active in the interests of shareholders where the shareholders
are themselves.
Companies with managerial ownership above 20% of voting rights and are the highest
shareholder compared to other shareholders will be the decision makers in the company and
vice versa. By becoming a decision maker, a shareholder can propose policies related to the
running of the company, including dividend policy.
Effect of Control Variables on Dividend Policy
The control variable in this study consisted of three variables, namely Return on Assets
(ROA), Debt to Equity Ratio (DER), and Total Asset Turnover (TATO). The results of the
Return On Asset (ROA) test in model 1 show a coefficient value of -0.54%, a t-count value of
-1.19, and a significance of 0.23 greater than 0.05 while in model 2 shows a coefficient value
of 0.10%, the value of t arithmetic is 0.21, and a significance of 0.83 is greater than 0.05, it
can be concluded that Return On Assets (ROA) cannot affect dividend policy in both model 1
and model 2. This means that it is high the low return on assets (ROA) will not affect the level
of dividend policy issued by the company.
The results of the Debt to Equity Ratio (DER) test in model 1 show a coefficient value of
-0.97%, the t-count value of -0.68, and a significance of 0.49 greater than 0.05 while in model
2 shows a coefficient value of -0.69%, to arithmetic value of -0.48, and a significance of 0.62
greater than 0.05, it can be concluded that the Debt to Equity Ratio (DER) can not affect
dividend policy either model 1 or model 2 This means that the high and low Debt to Equity
Ratio (DER) will not affect the level of dividend policy issued by the company.
The results of the Total Asset Turnover (TATO) test in model 1 show a coefficient value
of -2.74%, the t-count value is -2.14, and a significance of 0.03 is smaller than 0.05 while in
model 2 shows a coefficient value of - 2.30%, the t-count value is -1.74, and a significance of
0.08 is smaller than 0.05, it can be concluded that Total Asset Turnover (TATO) has a
negative effect on dividend policy, both model 1 and model 2. The higher the Total Asset
Turnover (TATO) will reduce the dividend policy issued by the company.
.

CONCLUSION
Based on the results of the research described in chapter V, the conclusions related to the
influence of managerial ownership, the proportion of managerial ownership <20%, the
proportion of managerial ownership> 20%, return on assets, debt to equity ratio, and total
asset turnover to dividend payout ratio the companies listed on the Indonesia Stock
Exchange in this study are as follows:
1. Managerial ownership has a positive effect on dividend policy in companies listed on the
Indonesia Stock Exchange.
2. The proportion of managerial ownership <20% has no effect on dividend policy in
companies listed on the Indonesia Stock Exchange.
3. The proportion of managerial ownership > 20% has a positive effect on dividend policy in
companies listed on the Indonesia Stock Exchange.
4. Return on assets does not affect the dividend policy of companies listed on the
Indonesia Stock Exchange.
5. Debt to equity ratio does not affect the dividend policy of companies listed on the
Indonesia Stock Exchange.
6. Total asset turnover has a negative effect on dividend policy in companies listed on the
Indonesia Stock Exchange.

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